Profitsee – Future Economic Surivival

Divinations in Forex, Commodities and Economic Patterns

Pre-mature stop-loss hedge example

4:06 PM 3/16/2007
stoploss25bine.PNGStops are imperfect. I’ve blown up many a trade that continued in the right direction after my stop-loss was hit. In today’s trade, the sell short level was hit at 3318 but the stop-loss took me out at 9:40am at 3328.

A 12pm 3325 bine could of been implemented when the cash sell short was hit at 3318 at 9:15. At that time one could have been put in an order to sell the 3325 (yellow line) The theoretical price to set the sell should be near to stop-level. This was the midsection of the two Bollinger Bands (brown bands). The 12pm binary sold at 3325 would have closed at a profit. Depending upon your cash position, the premium may have covered the stopped loss. and then some. 

This strategy is only useful if your technical study experiences a lot of noise within ranges, trendlines or S & R levels. Rather than being wipsawed, bines could be entered to match/cover the loss. This gives you the flexibility to raise your stop-loss from the price action to maintain your position. But it comes at a cost. If VIX dries up, you losses would compound. Separate VIX models would need to be implemented to justify the success of this strategy.

Hedge funds may be okay with entering back into the market at losses, but if they have VIX on their side, the leverage of  binaries increases the speed more than the volume of return, like regular options, yet with a higher delta. 

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Filed under: stop-loss

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